Views from the Bench
| Publication year | 1998 |
| Pages | 45 |
| Citation | Vol. 11 No. 6 Pg. 45 |
The Source of Funds Rule - Equitably Classifying Separate and Marital Property
Michael D. Lyon, Judge
Most district court judges and family law lawyers have handled a case similar to the following example: Wife has a house with a mortgage when the parties are married; the title stays in her name and the parties pay on the mortgage with marital funds. How, then, at the time of the divorce is the equity or value in the house divided? More specifically, how is Wife's separate interest protected while assuring that the marital contribution to the value of the home is respected? The salient objective of this article is to share with the bar and bench the source of funds rule, a tool which provides an equitable and systematic method of classifying separate and marital property.[1]
1. UTAH LAW ON THE CLASSIFICATION OF PROPERTY
The analysis of a property division incident to a divorce begins with section 30-3-5 of the Utah Code, which ostensibly gives a trial court broad power to equitably divide all property owned by the parties, regardless of when or how it was acquired: "When a decree of divorce is rendered, the court may include in it equitable orders relating to the children, property, debts or obligations, and parties." U.C.A. § 30-3-5 (1997). indeed, facially it creates an all property system: namely, that all property owned by the parties may be equitably apportioned between them, regardless of ownership or whenever acquired.
Historically, the Utah Supreme Court was reluctant to go beyond the broad language of the statute and provide hard and fast rules for property division, holding instead that a grant of broad discretion to the trial court would better ensure an equitable result. Consequently, the Utah high court found no abuse of discretion when premarital property, or separate gifts and inheritance, were liberally divided between the divorcing parties. See Newmeyer v. Newmeyer, 745 P.2d 1276 (Utah 1987); Bushell v. Bushell, 649 P.2d 85 (Utah 1982); Dubois v. Dubois, 504 P.2d 1380 (1973). Likewise, it affirmed trial courts on the other end of the spectrum who concluded that each party should, in general, receive the real and personal property he or she brought into the marriage. See Preston v. Preston, 646 P.2d 705 (Utah 1982); Georgedes v. Georgedes, 627 P.2d 44 (Utah 1981) Jesperson v. Jesperson, 610 P.2d 326 (Utah 1980); Humphreys v. Humphreys, 520 P.2d 193 (Utah 1974).
In the past decade our appellate courts have recognized the value of adopting and consistently applying some general rules and have created an analytical framework for the treatment and division of separate and marital property. In Mortensen v. Mortensen, 760 P.2d 304 (Utah 1988), Justice Howe articulated what has become the general rule in the division of separate or inherited property.
[T]rial courts making "equitable" property division pursuant to section 30-3-5 should, in accordance with the rule prevailing in most other jurisdictions and with the division made in many of our own cases, generally award property acquired by one spouse by gift and inheritance during the marriage (or property acquired in exchange thereof) to that spouse, together with any appreciation or enhancement of its value, unless (1) the other spouse has by bis or her efforts or expense contributed to the enhancement, maintenance, or protection of that property, thereby acquiring an equitable interest in it, or (2) the property has been consumed or its identity lost through commingling or exchanges or where the acquiring spouse has made a gift of an interest therein to the other spouse.
Id. at 308 (citations omitted).
Mortensen is a seminal decision because it not only provides a more definite statement upon which practitioners and trial courts can rely, it shifts the analysis in Utah from an all property system to a modified dual classification system, where property is first categorized as either separate or marital and then, presumptively, the separate property, is given to the owner spouse and the marital property is divided equitably. The presumption that separate property is given to the owner spouse may be rebutted, however, if there are just and equitable reasons to do otherwise. Thus, the dual classification system that is absolute in some states is a modified system in Utah because equity might require the trial court to invade separate property in fashioning an equitable result.
Since Mortensen, apparently in the interest of promoting more predictability and encouraging more consistent results, the Utah Court of Appeals has restricted a trial court's ability to divide separate property between the parties to situations involving "extraordinary circumstances," Burt v. Burt, 799 P2d 1166 (Utah App. 1990), or "unique circumstances," Walters v. Walters, 812 P.2d 64 (Utah App. 1991). The court of appeals has been more proactive in monitoring the trial court's divisions, emphasizing that property division should be done in a "fair, systematic hshioa." Hall v. Hall, 858 P.2d 1018 (Utah App. 1993). Specifically, the court of appeals requires detailed findings as to the classification of property before it is divided. See Haumont v. Haumont,...
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